Has Housing Bottomed?

 | Nov 30, 2011 | 2:41 PM EST
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Has housing bottomed? Did we finally get a number today that shows it is bottoming? Possibly, but it wasn't the pending home sales. Although they jumped 10.4%, that isn't how housing will trough. It will be based on employment -- and the numbers out of the ADP said the U.S. added 206,000 jobs in November. That's much better than the expected 130,000 and it may be the key number to focus on if we are to believe that housing can stop going down.

We just got the Case-Shiller numbers the other day on housing prices and in aggregate they weren't any good -- down low-single digits year over year. It's important to remember that when that numbers came out, we buried housing alive once again -- and that number is not even 48 hours old. So, a market this big can't turn on a dime.

When we talk about the root cause of the housing crisis, we almost always talk about two things: the high level of foreclosed properties on the market and the underwater borrowers who can't sell their homes and are more likely to simply stop paying their mortgages and then bet they won't be evicted any time soon. So ,yep, they are squatting.

I don't disagree that those are highly intractable issues. But I do disagree that they are what's causing this crisis to continue. For the longest time, we had too many homes being built, in large part because of a terrible decision by the government to offer a tax credit to home buyers. That, plus the tax breaks the homebuilders got encouraged too many homes to be built on top of an already saturated market.

Now, though, next to nothing is being built. There are some months where we are building fewer homes than we did when our country was half this size. Plus, Fed Chief Ben Bernanke is keeping mortgage rates low to allow potential homebuyers to buy homes that are now priced at much more affordable levels than any time in the last decade.

But what's missing is people who can take advantage of the low rates and the low home prices and do some buying. You can't get that loan if you don't have a job. The banks aren't going to give you a mortgage. They have tightened to the point that unless you have solid employment, without risk of being laid off, they will just say decline your application.

That's why the key to stabilizing housing is creating jobs. And I think that's starting to happen. That, plus the potential massive stimulus from the payroll tax cut could make real difference.

So, if you want to see housing get better, you need the inventory overhang to be diminished. New jobs mean new homebuyers. Having new home buyers equals the sector's bottom.

In other words, it could at last be happening -- and not a moment too soon.

Random musings: Over on Real Money Pro, Doug Kass had a great piece yesterday on just this topic: "Calling a Bottom in Housing."

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